Inco given a month to decide on royalty payments
Leony Aurora, The Jakarta Post, Jakarta
The government has demanded that PT International Nickel Indonesia (Inco) double its royalty payments in return for a permit to boost output by 25 percent in 2009, giving the nickel producer a month to decide its stance.
Inco should double its royalties if nickel prices rise to higher than US$3.5 per pound, said the Ministry of Energy and Mineral Resources' director general of geology and mineral resources Simon Sembiring on Tuesday.
"The higher royalty applies only to the additional output," he said.
The Indonesian unit of the world's second largest mining firm, Inco Ltd., is seeking to up the production of its giant mine in Soroako, South Sulawesi, from the current 160 million pounds of nickel in matte to 200 million pounds by 2009.
The higher royalty is the only remaining snag for Inco in securing the permit to mine more nickel. The other issues discussed -- including community development programs, power generation and dam construction -- have already been resolved.
"We will not give (Inco) the permit to increase production if it refuses to meet our terms," said Simon.
"We'll give it one month to decide."
Inco has offered to give an additional 1 percent of profits for 10 years to community development programs.
At present, the company prefers this option to doubling royalties, said Inco's director for government relations Sri Kuncoro in a telephone interview.
"I can't say much. We are negotiating with the government," he said.
According to Kuncoro, when Inco's contract was revised in 1996, the nickel miner had agreed to pay a royalty of $78 per ton after 2008. Media reports show the company pays the government 0.015 percent for every kilogram of nickel sold.
According to the company's website, in 2009 Inco is set to contribute $9 million in royalties and $5 million in water levies and land rent to the central and local administrations.
Inco owns the rights to mine two other areas, namely Bahodopi in Central Sulawesi and Pomalaa in Southeast Sulawesi. However, these areas have not been developed.
To support the expansion in Soroako, the firm wants to build a 350-megawatt hydro power plant in Karebbe, South Sulawesi, with an estimated investment of $280 million.
Nickel prices surged last year as demand from producers of stainless steel and other alloys in China grew. In 2004, nickel averaged $4.88 a pound, up 51 percent from an average of $3.23 per pound in 2003, based on the benchmark prices at the London Metal Exchange.
Inco's net profits rose to $265.1 million in 2004, from $104.2 million the year before, supported by a 56 percent jump in sales revenue from $509 million in 2003 to $792.1 million last year.